Southern Water seeks to borrow up to £4bn from investors | water industry

Southern Water is looking to borrow up to £4bn from investors over the next five years, in a move that could ratchet up the pressure on utility companies turning to bond markets for support amid the ongoing crisis at Thames Water.

An investor presentation posted to Southern Water’s website shows that will need to tap investors for up to £3.8bn worth of debt over the next five years, as part of a revised business plan – on top of needing to raise £650m worth of equity.

Its presentation highlighted that the company, which provides water for 2.7 million customers in the south-east of England, had successfully raised £1.6bn of debt and equity to support its turnaround plan, over the last financial year, including funds from its majority owner , Macquarie Asset Management.

The supplier has been majority-owned by Macquarie since 2021, when the Australian investment firm provided an emergency £1bn cash injection that helped the company avoid possible renationalisation. It invested a further £550m in Southern Water last year.

Southern’s bid for extra funding comes as its struggling rival Thames Water continues to fight for its survival. The UK’s largest water supplier has been laboring under about £15bn of debts, creating uncertainty for its 8,000 employees and 16 million customers across London and the Thames Valley.

Thames was pushed into crisis after shareholders U-turned on £500m of emergency funding earlier this year amid a standoff with Ofwat over how much Thames will be allowed to increase bills over the next five years. If the company collapses, it is expected to be put into a form of temporary nationalization, known as the special administration regime, to ensure its essential services can continue to run while the government examines its long-term options.

Ministers are still understood to be hopeful that a “private market solution” can be found under which Thames can restructure its finances without government intervention.

However, Thames gained some breathing room after extending a revolving credit facility – in effect an overdraft – that had been due to expire on Monday. Of the £530m falling due, the company confirmed it had paid off £120m of that total in August, and reached an agreement with lenders to extend the remaining £410m credit facility last week.

Southern Water’s fundraising proposal comes after its original business plan was criticized by the industry regulator for England and Wales, Ofwat, which said in July that it “fell short” of minimum expectations and categorized it as “inadequate.”

The company has attempted to raise water bills more than any other English water company. Southern said in its investor presentation that it planned to ask Ofwat to allow it to increase the average annual household bill to £734 by the 2029-30 financial year. That is the highest average bill among its main rivals, according to its presentation.

Southern’s presentation said: “We recognize the challenges with the increase in bills proposed over the next 5 years. However, our approach to managing affordability includes multiple incentives.” It noted that included discounts of 45-90% for those struggling to afford their bills.

Southern Water was approached for comment.